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So I Hired a Felon: An Update on the Law of Negligent Hiring

Posted | by William Joseph Austin, Jr. William Joseph Austin, Jr.

We might call it a Scud theory of recovery.  Like the notoriously inaccurate Soviet missile, negligent hiring is a hit, but mostly miss, claim for relief that has evolved in the domain of employment law. 

The employer assuredly has a legally recognized duty to others to select competent employees.  This principle is an integral part of the law of negligent hiring, but when and where it attaches can be enigmatic.  The Court of Appeals of North Carolina, for example, spoke the truth, "The nature and extent of the duty owed by the employer to injured parties in negligent hiring cases has not been described with great precision in the case law of North Carolina to date."  Little v. Omega Meats I, Inc., 171 N.C. App. 583, 587, 615 S.E.2d 45, 49 (2005). 

All 50 states have recognized some variation on the theme of recovery based on negligent hiring.  "Negligent Hiring and Negligent Retention:  A State by State Analysis," by N. Kittling (ABA 4th Annual Section of Labor and Employment Law Conference, Chicago, Illinois, November 6, 2010).  The Restatement of Torts also includes a section entitled "Duty of Master to Control Conduct of Servant," Restatement, Second, Torts, § 317.  According to the accompanying commentary, liability on the part of the master or employer arises only when the unfit or incompetent servant or employee is tortiously "acting outside the scope of his employment."  Id. at Comment a.  If the employee is acting within the scope of employment, then the employer may be vicariously liable under agency principles.  Id.

The law of North Carolina is an example of how these basic principles play out in practice.  Here it is said that the employer's duty extends to the protection of "any member of the general public who comes into contact with the employment situation."  Little v. Omega Meats I, Inc., 171 N.C. App. 583, 587‑8, 615 S.E.2d 45, 49, aff'd per curium, 360 N.C. 164, 622 S.E.2d 494 (2005).  It covers third parties where the employee and the prospective plaintiff are in places where each has a right to be when the wrongful act occurs; the plaintiff meets the employee as a direct result of the employment; and the employer is to receive some benefit from the meeting of the employee and the plaintiff.  See id

Once the duty is established, then the elements of a claim for negligent hiring are:  (1) a specific tortious act by the employee; (2) the employee's incompetence or unfitness; (3) employer's actual or constructive notice of the employee's incompetence or unfitness; and (4) an injury to another person resulting from the employee's incompetence or unfitness. White v. Consolidated Planning, Inc., 166 N.C. App. 283, 292, 603 S.E.2d 147, 154 (2004) (hereinafter "White"), citing Medlin v. Bass, 327 N.C. 587, 591, 398 S.E.2d 460, 462 (1990) (hereinafter "Medlin").  We will next parse the Little, White, and Medlin cases for whatever insight they may provide.

In Little, an outside salesman named Smith broke into the plaintiffs' home and assaulted them.  The defendant had supplied the salesman with a company truck and specifically commissioned him to go door-to-door to sell its products.  It was in the course of a work day that the salesman parked his truck and broke into the plaintiffs' home with intent to do them harm, not to sell them any Omega Meats.

When he first began work for the employer, he had a record of convictions for drug offenses and assault.  171 N.C. App. at 585, 615 S.E.2d at 47.  During an earlier stint with the employer, he was convicted of common law robbery and kidnapping, for which he served an active prison sentence.  Id.  After he was released from prison, he went back to work for Omega Meats and, back on the street again, assaulted the plaintiffs.  Id.

The Court of Appeals held that the employer did not have a duty to the plaintiffs on these facts:

In the instant case Smith was not in a place where he had a legal right to be since he broke into plaintiffs' home; Smith and plaintiffs did not meet as a direct result of Smith's relationship with defendants, since he did not enter plaintiffs' home as a salesman; finally, defendants received no benefit, direct, indirect or potential, from the tragic "meeting" between Smith and plaintiffs.

171 N.C. App. at 588, 615 S.E.2d at 49.  In short, there was absence of "a nexus between the employment relationship and the injury."  Id.  By finding no legal duty the Court was not required to address the salesman's criminal history, the defendants' knowledge of it, or the implications of giving him a truck to drive around town in.  The holding also seems to be at cross purposes with an earlier suggestion, similar to the comment in the Restatement, that negligent hiring and retention should be the means for allocating responsibility when the employee is acting outside the scope of his employment.  Hogan v. Forsyth Country Club, 79 N.C. App. 483, 495-496, 340 S.E. 2d 116, 124 (1986).

Thus, Little was a perplexing miss for the plaintiffs.  Just as perplexing but a palpable hit for another set of plaintiffs was the White case.  There the Court of Appeals overturned dismissal of a negligent hiring claim made by customers of a financial planning firm.  Their financial advisor, defendant's employee, misappropriated their money.  An interesting twist, the dishonest advisor was the plaintiffs' own son.  Nevertheless, the Court of Appeals held that the plaintiffs had adequately alleged that the defendant would have discovered the employee's unfitness had it conducted a reasonable investigation prior to hiring him.  166 N.C. at 292, 603 S.E.2d at 155.  The employee was allegedly terminated by his previous employer for engaging in similar illegal activity.  Id.  It was alleged that an investigation by the defendant reasonably would have revealed these past improprieties.  Id

Little and White do offer some contrast to say the least.  Notably, the author of the opinion in White dissented in Little

Medlin was another miss for the plaintiff.  The wrongdoing was sexual assault of a student by the school principal Bass.  At his previous place of employment, Bass also had been accused of sexually assaulting a student, a complaint that was never resolved one way or the other.  He then obtained employment in the school system that provided the backdrop for Medlin.  A representative of the new employer did speak with a school supervisor, principal, and superintendent of the school system where the earlier assault was alleged to have occurred.  In fact, the superintendent had interrogated Bass about the alleged assault.  None of these individuals made the allegations known to the new employer, even though a question was raised about Bass' "sexual proclivities."

The North Carolina Supreme Court upheld summary judgment for the defendants:  "The foregoing forecast is devoid of evidence that defendants . . . knew or reasonably could have known of defendant Bass' alleged pedophilic tendencies prior to the incident that is the subject of this lawsuit."  327 N.C. at 592, 398 S.E.2d at 463.  The defendants had at least gone to the right people, albeit with questionable efficacy.

The case of Stanley v. Brooks, 112 N.C. App. 609, 436 S.E.2d 272 (1993), another miss, adds yet another wrinkle.  A customer sued a car dealership for a salesman's alleged sexual assault during a test drive.  Three years earlier, the salesman, Brooks, had been charged with first degree sexual offense and first degree burglary but pleaded guilty to lesser charges.  However, the car dealership did not do a criminal record check on the salesman.

The Court of Appeals' opinion makes reference to "a presumption . . . that an employer has used due care in hiring his employees."  112 N.C. App. at 612, 436 S.E.2d at 274, citing Pleasants v. Barnes, 221 N.C. 173, 19 S.E.2d 627 (1942).  The burden is then on the plaintiff to show that the employer had actual or constructive knowledge of the employee's incompetence.  Id

In Stanley, it was said that there was no evidence that the defendant had actual knowledge of the salesman's criminal past.  The Court went on to say that "the record is devoid of any suggestion that defendant had any constructive knowledge of Brooks' past, or that defendant did not exercise due care in hiring Brooks."  112 N.C. App. at 612, 436 S.E.2d at 274.  The only information the dealership supposedly had at hand was that Brooks was an excellent car salesman.  Id.

The Court continued:

Although the defendant admits that it did not do a criminal record check on Brooks, we believe that it did not have a duty to do so.  See, e.g., Evans v. Morsell, 284 Md. 160, 395 A.2d 480 (1978) (stating that the majority of courts do not recognize a duty to inquire about an employee's criminal record).

112 N.C. App. at 612, 436 S.E.2d at 274. 

In light of these authorities we can say that the prospective employer is entitled to a presumption of due care, generally does not have the duty to conduct a criminal record check, but does have a duty to at least inquire of the immediate past employer.  A foolproof checklist is unascertainable, however, and with the ease and economy of getting an online criminal records check the 1993 sensibility of Stanley would at least seem suspect. 

Nevertheless, the 2013 case of Nowlin v. Moravian Church in America, ___ N.C. App. ___, 745 S.E.2d 51 (2013), fails to shed additional light on the subject.  The Court of Appeals in Nowlin affirmed summary judgment against the plaintiffs who averred several theories of recovery including negligent hiring of a camp counselor who, the plaintiffs alleged, sexually assaulted a 16 year old camper who attended the defendants' summer camp.  According to the Court of Appeals, the "undisputed evidence" demonstrated as a matter of law that the defendants acted reasonably in hiring the counselor, whose alleged harmful conduct to the camper was unforeseeable.  That evidence included the counselor's "personal disclosure indicating that he had not had any criminal conviction," and he was not listed on the National Sex Offender Registry.  He also provided "a favorable recommendation in a telephone interview with a trusted reference," and had a "very positive" record of employment at the same camp where he had been employed the previous summer.  745 S.E. 2d at 55.  The result is hard to argue with, but the opinion omits a prescription for what information prospective employers should systematically seek.

Information of all sorts in this Post-Snowden, Tweet and Twitter World is easy to come by.  Also, by law, reference checks should be as easy as picking up the telephone and calling past employers.  The law of North Carolina, specifically N.C. Gen. Stat. § 1‑539.12, provides a current or former employer with a qualified immunity from civil liability and damages for disclosure of information about a current or former employee's job history or "job performance" to a prospective employer upon request.  Id. at (a).  Immunity will not apply when the aggrieved party shows by a preponderance of the evidence that the information disclosed was false and the employer who provided the information knew or reasonably should have known that the information was false.  Id. at (1) & (2).  Thus, good faith error is covered by the immunity. 

The definition of "job performance" for purposes of the immunity is limited to suitability of the employee for re‑employment, the employee's skills, abilities, and traits as they may relate to suitability for future employment, and the reason for the employee's separation in the case of a former employee.  N.C. Gen. Stat. § 1-539.12(b).  Nevertheless, in tandem with the relative ease of obtaining a criminal background check, the prospective employer should be able to perform a pretty good in‑house background check.

In reality, it is not so simple.  Notwithstanding G.S. 1‑539.12, the prevailing attitude of well‑counseled businesses is to provide verification of the employment and such non‑controversial facts as start and end dates of the employment.

Then there is the dilemma of what to do with information when you get it.  Does it taint the process?  After all, the ideal recruitment is for a colorblind decisionmaker to choose from a unisex, ageless array of applicants.  One cautionary word in particular has to do with the EEOC's aggressive enforcement policy when it comes to disparate outcomes in background checks.  The agency has sued Dollar General, as well as a BMW manufacturing plant, for their use of criminal background checks in hiring and firing, which the EEOC alleges, have a disparate impact on African-Americans.

Criminal records are indeed uncovered in the course of checking backgrounds.  Here we must be mindful that the prohibition against double standards applies not only to intentional discrimination, but also to unintentional patterns and practices that have a discriminatory effect, i.e., disparate impact.  One such policy, a source of longstanding controversy, has been the requirement of a perfectly clean criminal record.  Statistics demonstrate that such a requirement has disparate impact on blacks and Hispanics.  The EEOC has long taken that position. 

In April of 2012 the agency handed down new guidelines on the subject, "Enforcement Guidance on the Consideration of Arrest and Conviction Records in Employment Decisions Under Title VII of the Civil Rights Act of 1964," to protect minority candidates  who are disproportionately screened out of consideration for employment due to arrest and criminal records.  The EEOC considers even a facially neutral policy or practice violative of Title VII if it disqualifies a disproportionately impacted member of the protected group and the employer fails to demonstrate that the policy or practice is both job-related for the position in question and consistent with business necessity. 

The 2012 guidance reiterates that an arrest record, standing alone, may not be used to deny an employment opportunity, since the record of an arrest does not report the ultimate disposition of a charge or possible expungement and other exculpatory information.  With regard to criminal convictions, in order to satisfy the EEOC's job‑related/business necessity burden, the employer must show that any exclusion based on criminal conduct effectively links specific criminal conduct and its dangers with risk inherent in the duties of a particular position.  For example, a recent conviction for embezzlement may provide the legal basis for summarily rejecting an individual's application for a job that requires the handling of money.  The EEOC guidance, however, encourages the prospective employer to undertake a case-by-case analysis that factors in the type of crime that was committed, its recency or remoteness in time, and the nature of the job to be filled.

The EEOC guidance expresses strong preference for individualized assessment as the best way for employers to avoid Title VII liability, including dialogue with the applicant about the criminal history.  For certain, a knee jerk rejection of an applicant based on an arrest record, or even a criminal conviction made irrelevant by the passage of time or other circumstances, may be sufficient for the EEOC to find reasonable cause to believe that Title VII has been violated.

The courts, however, seem to be taking a dim view of the agency's aggressive enforcement policy.  In a thoughtful Memorandum Opinion, yet another District Judge has viewed the EEOC's position on credit and criminal checks with a critical eye.  EEOC v. Freeman, No. RWT 09cv2573 (D. Maryland Filed August 9, 2013) (Memorandum Opinion).  Critical of both the agency's theory and its expert witnesses, the District Judge granted summary judgment for the defendant, stating the following in conclusion:

The story of the present action has been that of a theory in search of facts to support it.  But there are simply no facts here to support a theory of disparate impact resulting from any identified, specific practice of the Defendant.

Indeed, any rational employer in the United States should pause to consider the implications of actions of this nature brought based upon such inadequate data. . . .[T]he EEOC has placed many employers in the "Hobson's choice" of ignoring criminal history and credit background, thus exposing themselves to potential liability for criminal and fraudulent acts committed by employees, on the one hand, or incurring the wrath of the EEOC for having utilized information deemed fundamental by most employers.  Something more, far more, than what is relied upon by the EEOC in this case must be utilized to justify a disparate impact claim based upon criminal history and credit checks.  To require less would be to condemn the use of common sense, and this is simply not what the discrimination laws of this country require.

Slip op. at 31‑32 (emphasis supplied; see the iteration below).

Due to multiple factors, such as the hit‑or‑miss aspects of doing it yourself, as well as the increasing mobility and anonymity of the workforce, employers increasingly feel the need to employ an agency to perform background checks.  If a report on an applicant is obtained from a Consumer Reporting Agency (CRA), a business that assembles such reports for other business, then the process and product are regulated by the Fair Credit Reporting Act (FCRA), 15 U.S.C. § 1681, et seq.  The FCRA explicitly applies if the report is to be used "for employment purposes."  15 U.S.C. § 1681b(a)(3)(B).

With all of this said, if the employer decides to conduct the background check in‑house our recommendation is as follows:

  • Obtain an employment history and references from the applicant, make inquiries to the past employers and references, but only ask for information related to "job performance."
  • Ask the applicant for a criminal history, convictions only.
  • Do not rely on a 1993 legal opinion, and do use 21st Century resources, obtain an online independent criminal history.
  • If the process turns up contradictions or information that would otherwise disqualify the applicant provisionally, bring it to his or her attention and ask for mitigating information.
  • Make a final decision based on a "common sense" individualized assessment of the applicant's fitness for the position.

For further treatment of background checks, see "The Past is Never Dead:  Issues in the Search for Quality Employees" (May 10, 2013); and on the subject of the Fair Credit Reporting Act in particular, "Employers Beware!  Don’t Let A Fair Credit Reporting Act Claim Sneak Up on You" (January 8, 2013).

This post is not intended to give, and should not be relied upon for, legal advice in any particular circumstance or fact situation. No action should be taken in reliance upon the information contained in this post without obtaining the advice of an attorney. If you have questions concerning this post, please contact William J. Austin, Jr. at wja@wardandsmith.com.

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